Innovation

A different perspective

Understanding physics in our universe as an astrophysicist does not mean having an answer for the chaotic behavior of financial markets. As an active investor since 1996, I often wondered myself what could be the invisible hand ruling financial markets. Over the years I drafted a few concepts, but my busy job for a multinational did not allow for further investigation. Late 2013, I decided to quit and focus on researching these intriguing concepts. My objective was to develop an analysis method which would reduce subjectivity and increase transparency, if at all possible.

Seemingly random financial market behavior asks for a rigorous approach from a different perspective. The concepts documented when traveling the globe, included a few key observations and a thesis with respect to a potential role of chaos theory in financial markets. The misleading word “chaos” gives an impression as if this is the science of surprises, where the unexpected can be expected. Chaos theory however aims to find “hidden order” in a seemingly chaotic environment. This hidden order is often reflected in symmetry and in repetitive events.

Symmetry in financial markets has been made visible by Benoit Mandelbrot (1924-2010) when he discovered a ‘degree of order’ and used computer graphics to display fractal geometric images using early IBM mainframes. In his book ‘The Fractal Geometry of Nature’, he compares the complexity of natural phenomena (lightning, clouds or star distribution) with the geometry of fractal shapes and offers his ideas for new applications. One of his ideas relates to the application of fractal geometry in stock markets.